01 Dec 2020
Deutsche Bank AG executives want to expand in Russia despite a legacy of missteps and massive fines. Outside monitors who watch over the bank’s money-laundering controls said it should shut the business instead, according to a person familiar with the communications.
The monitors, appointed by New York state’s Department of Financial Services, told the bank in October that efforts to improve its operation weren’t enough to make up for the large risks of doing business with Russian clients, the person said.
A Deutsche Bank spokesman declined to comment on its dialogue with monitors, but said it is conducting a risk analysis for several countries, including Russia. “As we work to continuously improve our controls in combating financial crime, our risk appetite must be in line with the maturity of those controls,” he added.
A Department of Financial Services spokeswoman declined to comment.
The monitors are attorneys Lee Wolosky and Dawn Smalls from the law firm Jenner & Block LLP. A Jenner & Block spokesperson didn’t respond to requests for comment.
The monitors can’t directly order changes at Deutsche Bank. They make recommendations that are shared with the New York regulator, which can threaten fines and costly remediation. Its actions can draw attention from other, powerful U.S. regulators.
The monitors have been in place since Deutsche Bank settled a case in 2017 related to “mirror trades,” in which the bank moved $10 billion of Russian client money out of the country. They told Deutsche Bank that a 2018 deal to sell a property in Silicon Valley to a Russian businessman, despite the objection of the bank’s U.S. reputational risk committee, played a role in forming their views. The Wall Street Journal reported about the deal last year, citing documents and people familiar with the matter.
The call by the monitors to quit Russia creates a high-stakes dilemma for the bank and Chief Executive Officer Christian Sewing. He has promised to restore Deutsche Bank’s tarnished reputation with regulators. Deutsche Bank paid large fines in the U.S. and U.K. related to lax anti-money-laundering procedures. In 2017, it ran into trouble with Federal Reserve regulators over risk controls in its U.S. operations. It received a fresh rebuke from the Fed earlier this year over similar matters.
The bank has also faced questioning from Democrats in Congress about Deutsche Bank’s role as a leading lender to President Trump.
Deutsche Bank has said it has committed significant resources to improve its money-laundering controls and has fully cooperated in investigations.
By Patricia Kowsmann and Jenny Strasburg, Wall Street Journal, 26 November 2020
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